March 20, 2014
At Wokwicz Law Offices, we have been monitoring developments and the legal ramifications for the implementation of the latest Wisconsin Budget Bill. In this, our newest and most recent update, we have a number of key points to highlight to help our client protect their assets through well-formed estate plans.
As we previously note, the implementation of the Wisconsin Budget Bill is coming into play in piecemeal. Some of the provisions are in full force while yet other provisions have been repealed. Still further provisions have yet to be fully implemented. In short, we have detailed below where we stand on some of the primary long-term care and estate planning changes adopted in 2013 by the Wisconsin Budget Bill.
Stop Nursing Homes From Taking Your Assets
With proper advanced planning, you can protect your assets from nursing homes.
We appreciate that this post leans towards the deep end of the legalese pool. If you have any questions about any of the topics below, please do not hesitate to call our estate planning and trust attorneys.
Irrevocable Trusts
Due to extensive lobbying and discussions, combined with possible conflicts with federal law, Act 92 restored the effective use of Irrevocable Trusts in Wisconsin as an Estate Planning and Asset Protection Option. Act 92 allows a properly drafted Irrevocable Trust to protect assets from a nursing home and Medical Assistance. Therefore, it is very important to plan ahead when using an Irrevocable Trust and have a properly draft Irrevocable Trust in place and assets properly transferred to the trust well in advance of needing long term care.
First and Second Marriages and Marital Property Agreements
Unfortunately, challenges remain under the Wisconsin Budget Bill for married persons. This is especially true since the new law continues to place restrictions on the assets of the spouse living in the home or community (Community Spouse) for five years after the nursing home spouse becomes eligible for Medical Assistance (Medicaid).
As such, we suggest that married couples consider an “Opt-Out Marital Property Agreement”. In the event that either spouse requires long term care, we are advising our client to implement a properly executed Marital Property agreement that makes the assets of the Community Spouse the individual property of the Community Spouse.
Moreover, due to the new law, the Community Spouse should have a will with a special needs trust for the benefit of the spouse in the nursing home for the first five years of the nursing home spouse becoming eligible for Medical Assistance. After the spouse in a nursing home has been eligible for five years, it may be suggested that the estate plan bypass the institutionalized spouse in favor of the children or grandchildren. However, with the new laws, a Community Spouse should generally not bypass the nursing home spouse within the five-year period or risk “divestment by death.” If the community spouse gifts property or dies leaving property to anyone other than the institutionalized spouse within the five years period of the nursing home spouse becoming eligible for Medical Assistance, this transfer will affect the nursing home spouse’s ability to continue to receive benefits.
Therefore, proper estate planning is important in spousal cases. Many also feel that in second marriage situations that legal separation and divorce may become options to consider in order to preserve assets for children and grandchildren.
Life Estates
Life Estates are still valid planning tools in some situations, as they possess the advantage of protecting a portion of a house, cabin, land or other real property. The Wisconsin Budget Bill has not been changed with respect to life estates and the State of Wisconsin still appears ready to attempt recovery from life estates for individuals who received Medical Assistance and pass away after July 1, 2014. The issue of value and the constitutional issues of “takings” will probably end up in court.
Additionally, it appears that as of now the State of Wisconsin may apply estate recovery even to life estates set up prior to the enactment of the Wisconsin Budget Bill. We are waiting for the final implementation language from the Wisconsin Department of Health Services with respect to some of these details.
Promissory Notes
The original Wisconsin Budget Bill provision that aimed to make it more difficult to use promissory notes as a planning tool has been repealed. Therefore, we anticipate that the use of promissory notes will continue, especially for those who have not planned ahead at least five years before requiring long-term care. Specifically, Act 92 repealed language regarding the “presumptive heirs” penalty which will allow promissory notes to be used in family estate planning situations.
Care Agreements
Care Agreements, where a parent pays a family member for care will continue to be an important estate planning tool going forward. With a properly drafted Care Agreement in place, a parent can pay a child or other family members for the care services provided with the payments being treated as payment for services rather than impermissible gifts. This can be a great option to try to keep a parent living at home as long as possible, but prevent a divestment issue if the parent ultimately ends up in a nursing home or assisted living situation.
We’re Here to Help You Understand
As always, we welcome the opportunity to speak with you about your estate planning needs. We know that this new Wisconsin Budget Bill is proving very difficult to understand and follow. Please call our estate planning attorneys today at (262) 658-2181.